The RFP Riff

White, Michael D., Independent Banker

Compose your bank's RFP to make music with the right insurance agency

Your bank needs to implement a request for proposal process when selecting an unaffiliated third party to handle insurance services. Here's three reasons why: First, your bank must protect its bank-- customer relationship. Second, your insurance program must meet banking and insurance laws, regulations and guidelines. And finally, processes and tools like RFPs aid your board of directors, which ultimately is responsible for oversight of insurance programs in assessing the merits of a vendor.

A well-organized RFP makes your bank's job easier, and a readable and informative RFP response improves its analysis and evaluation of an unaffiliated agency. Moreover, a good RFP-response by an agency reinforces that the selected agency is, for your bank, a good choice as a useful insurance partner.

Customer Safeguards

Insurance products are not FDIC-insured. To protect your customers and your bank against any foreseeable corporate or financial risks, your bank needs to evaluate the financial strength and stability of companies that may provide insurance products and services to your customers. Therefore, your bank should review information pertaining to an agency's financial condition, reputation, experience and market-conduct record.

No bank wants to jeopardize its core business relationships with its customers by recommending third-- party products and services that do not meet suitable standards of utility, value and performance. Particularly in light of the fact that insurance products are not FDIC-insured nor are they obligations of your bank or guaranteed by it.

Your bank's insurance program must address more than just an insurance-sales strategy. It must also address the vendor due diligence mandates of various federal and state bank insurance laws and regulatory compliance guidelines.

In 1994, the Federal Reserve System, FDIC, OCC and OTS jointly released "The Interagency Statement on Retail Sales of Nondeposit Investment Products." The Interagency Statement mandated responsibilities banks must assume when offering mutual funds and annuity products. It placed more accountability on bank boards of directors for selecting and overseeing investment and insurance programs and for evaluating insurance marketers, products and companies.

These duties were heightened by a recent the comptroller of the currency's advisory letter, containing the OCC's guidelines for "best practices" in selling insurance. Since then, state bank insurance laws and regulations have imitated many of these federal prescriptions.

The Federal Reserve, FDIC, OCC and OTS also jointly implemented consumer protection rules for the sale of insurance products by depository institutions. The rules implement Section 305 of the Gramm-Leach-Bliley Act, which directed these agencies to establish rules that apply to any depository institution or any person selling, soliciting, advertising or offering insurance products or annuities to a consumer at an office of the institution or on behalf of the institution. These rules went into effect on Oct. 1, 2001.

Director Oversight Duties

These regulatory directives describe the duties of bank directors and management in establishing and supervising an insurance sales program. They prescribe the minimal standards of due diligence your bank must meet. Among others, they deal with such important subjects as:

* General program management and oversight;

* Qualification and training of sales personnel;

* Supervision of personnel and selling employees;

* Inappropriate recommendations or sales;

* Evaluation and selection of products to be sold;

* Communications with customers;

* Disclosures and advertising;

* Customer privacy;

* Customer suitability;

* Oversight of third parties; and

* Insurance carrier and product selection. …

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